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7th Circuit rules in favor of attorneys in failed business investment

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A group of investors suing attorneys who worked on the establishment of two business entities – which later failed – were unable to show the 7th Circuit Court of Appeals that the attorneys owed the investors any legal duty.

The federal appellate court upheld summary judgment in favor of Beau Jack White and James Beaman and their firm Johnson Beaman Bratch Beal and White LLP on the investors’ claims of RICO violations, conversion, securities fraud, civil conspiracy and legal malpractice.

Real estate investor Chad Seybold hired White and Beaman to help him create two business entities, one of which would be partially owned by a group of investors. At a seminar with potential investors, White explained the concept of limited individual liability afforded by an LLC structure. Seybold told the potential investors that White represented one of the new companies being formed, he’s looking out for the investors’ best interests, and White is working for Seybold and the investors. White never clarified or corrected Seybold’s statements that he was not the attorney for the investors.

Investors sank more than $1 million in Seybold’s plan; about a year later he informed investors he was filing for bankruptcy and that their investments were gone.

The plaintiffs alleged that they each established an attorney-client relationship with the defendants, and even if they didn’t, the defendants still owed them a duty under the Indiana Rules of Professional Conduct, most especially Rule 4.3 laying out a lawyer’s responsibility when dealing with unrepresented persons.

The only attorney-client relationship formed was with the two businesses, the 7th Circuit ruled, rejecting the investors’ claim that White’s presentation at the seminar implied existence of the attorney-client relationship with each investor. The judges also didn’t think Seybold’s comments during White’s presentation implied an attorney-client relationship with investors. They also rejected the claims that a duty was implied under the Rules of Professional Conduct.

“Further, several plaintiffs’ subjective beliefs demonstrate that they understood that the defendants were acting on behalf of the investors as a group, not individually, and that the defendants’ involvement in the investment plan did not last beyond the companies’ formation. And the disclaimer included in the operating agreement that each investor signed should have alerted a reasonable investor that the defendants were not representing them in their personal capacities,” Judge Daniel Manion wrote.

The 7th Circuit also found the investors couldn’t rely on the statements made at the seminar to support their securities fraud or actual fraud claims.

“We need not address the merits of each independent tort … because the plaintiffs have failed to demonstrate that the defendants acted in concert with Seybold to commit any unlawful act, or that they accomplished a lawful purpose through unlawful means,” Manion wrote.



 

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  1. Im very happy for you, getting ready to go down that dirt road myself, and im praying for the same outcome, because it IS sometimes in the childs best interest to have visitation with grandparents. Thanks for sharing, needed to hear some positive posts for once.

  2. Been there 4 months with 1 paycheck what can i do

  3. our hoa has not communicated any thing that takes place in their "executive meetings" not executive session. They make decisions in these meetings, do not have an agenda, do not notify association memebers and do not keep general meetings minutes. They do not communicate info of any kind to the member, except annual meeting, nobody attends or votes because they think the board is self serving. They keep a deposit fee from club house rental for inspection after someone uses it, there is no inspection I know becausee I rented it, they did not disclose to members that board memebers would be keeping this money, I know it is only 10 dollars but still it is not their money, they hire from within the board for paid positions, no advertising and no request for bids from anyone else, I atteended last annual meeting, went into executive session to elect officers in that session the president brought up the motion to give the secretary a raise of course they all agreed they hired her in, then the minutes stated that a diffeerent board member motioned to give this raise. This board is very clickish and has done things anyway they pleased for over 5 years, what recourse to members have to make changes in the boards conduct

  4. Where may I find an attorney working Pro Bono? Many issues with divorce, my Disability, distribution of IRA's, property, money's and pressured into agreement by my attorney. Leaving me far less than 5% of all after 15 years of marriage. No money to appeal, disabled living on disability income. Attorney's decision brought forward to judge, no evidence ever to finalize divorce. Just 2 weeks ago. Please help.

  5. For the record no one could answer the equal protection / substantive due process challenge I issued in the first post below. The lawless and accountable only to power bureaucrats never did either. All who interface with the Indiana law examiners or JLAP be warned.

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